China's Year Of Virtual Reality

2016 became "year one" of virtual reality in China, due to the fact that the sector finally truly started to grow. My company Niko Partners estimates China’s VR hardware 2016 market size will hit $300 million by the end of this month with mobile VR being the unequivocal leader in terms of hardware unit sales. Virtual reality overall has been embraced in China more than the West and Chinese consumers have shown a willingness to go out and purchase VR devices or experiences, whereas consumer interest in the West has been somewhat muted.

Photo credit: VRScout.com

Consumer demand is driven by what is available to purchase however, and in China one can engage in “experience spots” such as VR pods or VR cafés, whereas consumers in the United States do not have that as an option quite yet. A survey done by Niko Partners earlier this year showed that more than half of Chinese gamers are interested in VR and almost 30% are willing to spend up to $200 USD on a device, which is significant considering the average income in China hovers around $12,000 per year.

In early 2016 Niko Partners counted 200 VR and augmented reality (AR) startups, and nearly 200 established companies expanding into VR/AR, in China alone, with more companies emerging monthly. Hardware investments accounted for 78% of the total investments made in all VR related products in 2015 and 2016. That investment has led to a surge in VR hardware sales this year whilst software sales growth hasn’t been as high. Development and sales of VR software has been slow, but should take off in the coming two years.

Mobile VR hardware has proved to be considerably more popular than high-end PC/Console VR hardware due to a number of factors. Mobile platform companies, such as Xiaomi & Huawei, and startups like Pico VR, Baofeng Mojing and Deepoon, have made mobile VR hardware readily available across both offline and online retail stores. The price of mobile headsets is affordable. T-Mall reported that the overwhelming majority of the 300,000 mobile VR headsets sold during the 11.11 shopping holiday cost less than 30 yuan, similar pricing to that of Google Cardboard in the West. These mobile VR headsets are easy to use and work with many existing smartphones, which is appealing when compared to expensive high-end VR hardware.

High-end PC VR is being marketed to businesses, as it is too expensive for consumers. For example, the HTC Vive costs $1,000 USD in China and requires a high-end PC that can also cost an additional $1,000 USD. The Chinese business solution has been to open VR Internet café’s and VR experience zones.

There are now more than 3,000 VR Internet cafés and experience zones in China that provide a high-end dedicated VR experience for as little as $8 USD for 30 minutes of gameplay. HTC has recently opened a new experience arcade store in Shenzhen and plans to open many more in the future (some accounts say 50 are planned, others say 1,000). Shunwang, the leading provider of Internet café management software, has released a VR-ready version of the software for VR Internet café owners. VR gaming content represents another opportunity for VR Internet café operators to diversify and grow their revenue streams.

Smaller VR experience spots, which typically are in the form of a motorized pod that a person sits inside, provide the user with a one-off experience that utilizes VR to transport the user to another world. An example of one such is experience is a user seeing himself on a rollercoaster. Experience zones have proved extremely popular with the public and this has led to a number of companies investing in the next step up. Shanda, a major Chinese digital entertainment company, have invested $350 million into VR, and part of that will be to bring U.S.-based ‘The Void’ VR theme park to China. The Void is similar to laser tag but with a full sense of immersion thanks to the VR headset and ability to move around in the real world.

My observation is that China already is actively investing in the promising mobile and high-end segments of VR for gaming, and beyond. Alibaba, Xiaomi, HTC, Chukong, Shanda, and Tencent are some of the leading Chinese tech companies to be embracing it in earnest. Next year is poised to be exciting for VR/AR in the Chinese (and global) digital games industry and I anticipate strong growth to continue during the next few years.

I am the Managing Partner and Founder of Niko Partners (http://www.nikopartners.com), a leading market research agency in the Asian games market. I founded Niko in 2002 and have spent 13 years analyzing the Chinese and Southeast Asian PC, console and mobile games industries...